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Latin America is Home to 111 “Billionaires”, 5% of the World’s Total Census

Latinoamérica cuenta con 111 “billionaires”, el 5% del censo mundial de multimillonarios — Wikimedia CommonsPhoto: Brett Weinstein. Latin America is Home to 111 “Billionaires”, 5% of the World's Total Census

The number of Latin American billionaires reached 111, a population which has grown 2.8% during the last year representing 5,11% of the first census of “billionaires” elaborated by Wealth-X and UBS.

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Latin American billionaires have a total net worth of almost $500 billion. Carlos Slim’s total net worth, amounts to almost 15% of the total net worth of the Latin American region.

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The inaugural Wealth-X and UBS Billionaire Census 2013, reveals that the global billionaire population reached a record 2,170 individuals in 2013 and total billionaire wealth in Asia surged nearly 13 percent, making it the fastest-growing region.  At current growth rates Asia will catch up with North America in five years.

Asia also saw the highest percentage rise in billionaire population (3.7% from 2012) and total wealth (13%) in 2013, suggesting that it is driving the tectonic shifts in wealth globally. The report also shows that 810 individuals became billionaires since the 2009 global financial crisis. The billionaire population’s combined net worth more than doubled from US$3.1 trillion in 2009 to US$6.5 trillion in 2013 – enough to fund the United States budget deficit until 2024, and greater than the GDP of every country except the United States and China.  The report – which looks at the global billionaire population from July 2012 to June 2013 – examines this tier of the ultra affluent population by region, country, gender and the sources of their wealth.   

Below are other key findings from the inaugural report: 

The global billionaire population rose by 0.5 percent and their total wealth increased by 5.3 percent in the past year.
Europe is home to the most billionaires (766 individuals). However, North America has the most billionaire wealth (US$2,158 billion).
Asia contributed the largest number of new billionaires (18) this year, followed by North America (11).
Latin America is the slowest growing region in terms of billionaire wealth, increasing by just 2.3 percent in the past year.
As of 2013, the average net worth of the world’s billionaires is US$3 billion.
Globally, there are 111 individuals who each have a net worth that exceeds US$10 billion. Their combined net worth is over US$1.9 trillion, greater than the GDP of Canada.
Despite popular notions of billionaires being jet-setting, cosmopolitan individuals, most billionaires are still based in the same locations where they were raised.
60 percent of billionaires are self-made, while 40 percent inherited their wealth or grew their fortunes from inheritance.
Only 17 percent of female billionaires are self-made, while 71 percent gained their fortunes through inheritance.

“UBS has had the privilege of serving the world’s most successful families for more than 150 years, and we are delighted to partner with Wealth-X in presenting the first Wealth-X and UBS Billionaire Census,” said Chi-Won Yoon, CEO of UBS Asia Pacific. “In Asia, most billionaires are entrepreneurs who remain heavily involved in their family businesses. UBS is uniquely positioned to meet the demands of this highly sophisticated clientele by offering world-class capabilities seamlessly integrated across our wealth management, investment bank and global asset management businesses.”

For the report’s microsite and additional video commentaries by Wealth-X and UBS executives, visit www.billionairecensus.com.

“People Alpha”, the New Differentiator for the Hedge Fund Industry

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Hedge funds that invest in people management register higher average investment returns than their peers, according to a new survey from Citi Prime Finance. This concept of “people alpha” is the latest potential differentiator for managers in an industry that is becoming increasingly competitive and institutionalized.

The survey corroborates numerous other academic studies that have shown the connection between superior performance and an investment in an organization’s people.

“Just as hedge funds once claimed ‘operational alpha’ as a differentiator, we believe that ‘people alpha’ will separate some firms from the pack and will soon become an industry norm,” said Sandy Kaul, Global Head of Business Advisory Services at Citi Prime Finance.

To conduct the study Citi interviewed a diverse group of 24 hedge funds, each with at least $500 million in assets under management, and evaluated each firm’s practices by focusing on four key pillars – Talent Acquisition, Talent Retention, Learning & Development and Performance Management. For each of these categories, Citi developed a list of standard and market leading criteria and ranked firms using a 10 point scale, cumulating in a single ‘people score.’

According to the survey, the number of people working at the firm is the determining factor in their focus on people-related matters. Larger firms (+150 people) consistently outscored and outperformed medium and smaller sized firms. When there were similar sized firms such as those between 50 and 150 employees, those that fell in the bottom half of the study’s people score underperformed similarly sized firms in the top half by nearly 600 basis points between 2009 and 2012.

Other key findings:

The greatest difference between top and bottom performing firms was in their approach to talent retention. This included developing an interactive culture and offering an extended benefits package, flexible workplace arrangements and workplace perks.
Firms that scored well in talent retention also tended to have stronger approaches towards talent acquisition. These firms used techniques such as implementing internship programs and actively recruiting a diverse workforce.
Firms that displayed strong growth also emphasized learning and development. This included leadership training, formal mentorship programs and ongoing coaching for the management and investment teams.
Another indicator of current and future success is the presence of a robust review process that includes peer reviews, separate performance and compensation discussions and the inclusion of qualitative as well as quantitative factors.

“As the industry continues to mature, sophisticated investors will assess hedge funds’ adherence to people management as a standard part of industry due diligence,” added Kaul.

The full report, along with other industry analysis and reporting can be viewed at this link.

Korea Raises Voice for Shareholders

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Corporate governance practices in South Korea’s family-controlled conglomerates, known as chaebol, find their roots in a social contract that was implicit in the process of the country’s economic development under military dictatorship, which began in the early 1960s. Korea’s previously autocratic government initiated economic plans and wielded power in the private sector by assigning different areas of development to each of several chosen corporate families. These corporations were expected to create jobs and earn U.S. dollars through exports. In turn, they received the privilege of government subsidies and considerable freedoms. Finally, under such a social contract, ordinary citizens were forced to give up certain democratic values and endure harsh working conditions to pull themselves out of poverty. Under this system, little if any consideration was given to shareholder value, and a culture of good corporate governance was an afterthought.

But South Korea has become a successful model of economic development and its governance is also changing accordingly. The implementation of democracy and an expectation of shareholder capitalism are part of the country’s new social contract. As it happens, South Korean authorities have recently imposed more severe punishment on business executives found guilty of corruption. In the past, courts were fairly lenient with chaebol tycoons, often pardoning them with comments such as “in consideration of past contributions to the national economy.” In terms of public sentiment in recent years, the reputation of Korea’s chaebol has also changed from that of “an export powerhouse” that can benefit the overall economy to that of an independent interest group whose expansion into domestic businesses might threaten the prosperity of the average citizen. Reflecting this new attitude, recent government measures have imposed limits on the expansion of such chaebol-owned businesses as franchise discount stores, bakeries and restaurants.

From the perspective of ownership in the local market, we can also observe a change. The assets under management of the country’s 14-year-old National Pension Fund have grown at a brisk pace. It now commands a considerable 6% of total ownership in the country’s stock market, up from about 3.6% in 2009. Given the continuously growing stake of the National Pension Fund in numerous Korean companies, it is not surprising that there will be incremental demand for better corporate governance and shareholder value, which may be mirrored in dividend payouts. The dividend yield of the Korean Composite Stock Price (KOSPI) Index is a mere 1.14%, while that of the MSCI All Country Asia ex Japan Index is 2.47%. Lower dividend payouts may reflect lower efficiency of invested shareholder capital, and may indicate that a company is sitting on excess cash. This scenario has been key to the so-called “Korea Discount” among global equity markets.

Interestingly, demand for better corporate governance in Korea has been initiated by liberal-minded social activists rather than capitalists. The group of political activists, who have also contributed to the nation’s political democracy, have been more vocal than activist investors about corporate governance issues. The fact that Korea’s somewhat conservative legal system has begun to react in favor of shareholder returns and economic democracy is an encouraging indicator of the formation of a new social contract for Korean society, and one I am optimistic about.

The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.

Investcorp Acquires Real Estate Assets Valued at $250 Million

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Investcorp, a manager of alternative investment products, announced that its US-based real estate arm has acquired a group of high quality office and retail assets in the greater Chicago, Los Angeles, Minneapolis and New York areas valued at $250 million.

“This acquisition adheres to Investcorp’s approach of targeting high quality assets, located in major metropolitan areas characterized by economic growth. In addition, our approach is to invest in assets that we believe will provide attractive yields soon after they are acquired,” said Herb Myers, managing director in Investcorp’s real estate group. “We believe that these properties also present an opportunity to improve their operating and leasing performance over a longer time horizon.”

The following properties comprise a total of more than 1.6 million square feet and have a combined occupancy rate of approximately 92 percent.

1603 & 1629 Orrington, Evanston, Illinois: Located in Chicago‘s northern suburbs, this two building office complex encompasses 339,000 square feet and benefits from its close proximity to Northwestern University. The city of Evanston has a thriving business district, is well-served by public transportation and is in close proximity to the City of Chicago.

Mountaingate Plaza, Simi Valley, California: Situated on 25 acres in the greater Los Angeles area, the second largest metropolitan area in the U.S., Mountaingate Plaza is a multi-tenant grocery and drugstore anchored retail centre with a connecting medical office facility located in Simi Valley, CA. The 246,326 square foot property has access to a number of highways connecting to San Fernando Valley and local residential neighbourhoods.

Oracle & International Centre, Minneapolis, Minnesota: With a total of 622,000 square feet, this acquisition is comprised of two Class A^–/B⁺ office towers in the heart of Minneapolis’s central business district. The office complex is leased by a group of 43 longstanding tenants, including Oracle America.

Long Island Office Portfolio (Garden City, Mineola and Rockville Centre) New York: Located on Long Island, with access to mass transportation and major roadways connecting to New York City, these three office properties have displayed historically high occupancy rates. The multi-tenanted portfolio is leased to 132 tenants and totals 374,000 square feet. Tenants include many local law firms as well as businesses in the healthcare and technology industries.

Since 1995, Investcorp has acquired more than 200 properties with a total value of approximately $10 billion. The firm currently has more than $4 billion of property and debt funds under management

When Recognizing Your Faults is the Right Way to Go

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Cuando hacer las cosas mal, y reconocerlo, es el mejor camino para hacer las cosas bien — Photo and video from Youtube. When Recognizing Your Faults is the Right Way to Go

Action: The textile industry uses huge quantities of clean, drinking-quality water to dye and finish fabrics. Dyeing and finishing are wet processes, which means they use water to transfer dyes and other chemicals evenly onto fabric. To achieve consistent, even application, the water must be pure and clean. When the process is complete, the water contains residual chemicals and colorants that do not stay on the fabric. Unfit for reuse, this wastewater is discharged after some level of treatment, into waterways and public water systems.

As a result, there is a great deal of dirty water behind all the exciting new fashions and colors, and a growing number of consumers are becoming aware of it.

Reaction: Although it is almost impossible for shoppers today to know whether or not the clothes they buy come from polluting factories, their awareness of the issue is prompting outdoor clothing companies, fashion brands, retailers, fabric manufacturers, textile dyehouses and chemical suppliers to work together towards change. Patagonia is a perfect example of a great brand that has decided to be totally transparent. Its founder, Yvon Chouinard, states “you shouldn’t be worried of telling everybody about the bad things you are doing, as long as long as you say, that we’re working on these things”. A couple of years ago, Patagonia created “The Footprint Chronicles”, where they stated in their website the story of the products they were selling. They told the consumer how their products were made and, when you looked at it from an environmental point of view, it was not good news. As a matter of fact, the outlook, for one of the most environmental friendly textile brands in the world, was plain bad. Nevertheless, since The Footprint Chronicles saw the light Patagonia has posted record profits. The consumers praise transparency and the fact that Patagonia decided to be honest and to work to solve these environmental issues.

Solution: Patagonia doesn’t make their own fabrics or sew their own products. They design styles, choose or develop materials and contract with factories to produce the things they sell. Realizing this complexity, Patagonia began working with bluesign technologies in 2000. Today, bluesign technologies is their most important partner in minimizing water use and the environmental harm done in Patagonia’s name from textile manufacturing.

Patagonia states that they are “well on our way toward meeting a goal we set in 2011 to be using only bluesign-approved materials by 2015”.

Opportunities and Challenges for PE/VC Investments in Colombia

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Now in its sixth year, the LAVCA Colombia Forum is the country’s premier event for Colombian and international investors to evaluate the opportunities and challenges for PE/VC investments in the region. Sessions will focus on GP/LP relations, as well as issues impacting local investor groups and pension funds. The 2013 program includes the participation of the region’s top CEOs and covers the progress of Colombian private equity, what to expect with major deals closing in the Oil & Gas and Energy sectors, as well as details on local regulation and reporting requirements.

The 2013 LAVCA Colombia Forum will take plece on November 13 in Bogota, Colombia, hosting 175 high-level executives for a full day of discussion and debate. Participants include global investment firms, Colombian private equity managers, global funds of funds, investment officers from local pension funds and insurance companies, family offices, corporate heads, local regulatory officials, representatives from development finance institutions, and other relevant industry players.

Fernando Soriano to Join Evercore to Lead Cross-Border Advisory Services in Latin America

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Evercore announced that Fernando Soriano will join its Investment Banking business as a Senior Managing Director to lead the firm’s cross-border advisory services in Latin America. Mr. Soriano, who is based in New York, will work closely with Evercore’s industry, product and geographic teams, and with the more than fifty bankers currently working in Mexico and Brazil.

Mr. Soriano was most recently a Managing Director and head of Corporate Finance Mexico at BNP Paribas and head of Latin America and Spain Investment Banking at Hill Street Capital LLC. With over 18 years of investment banking experience at firms including Salomon Smith Barney and Lehman Brothers, Mr. Soriano has extensive experience advising a broad array of companies and funds in M&A, debt restructuring and capital raising in Latin American transactions.

Pedro Aspe, Evercore’s Co-Chairman and Head of Mexico, said, “We are extremely pleased that Fernando is joining Evercore. We have great momentum in our Latin American business and Fernando will play an important role in helping us to extend that momentum, particularly in our cross-border activity.” Corrado Varoli, Chief Executive Officer of G5 Evercore in Brazil, said, “We are delighted to have Fernando join Evercore. We continue to see Latin America as a region of great interest to our global clients and we look forward to adding to our already significant advisory capabilities.”

Ralph Schlosstein, Evercore’s President and Chief Executive Officer, said, “Cross-border activity, both among Latin American countries and between them and the rest of the world, represents a strategic growth opportunity for Evercore. Fernando will augment our high quality coverage across all key sectors of this fast-growing region.”

“I look forward to joining Evercore’s highly regarded team of professionals and to being part of Evercore’s global growth, particularly in the Latin American region,” said Mr. Soriano.

Mr. Soriano received his B.Sc. in Industrial Engineering from Universidad Panamericana in Mexico City and his MBA degree from the Massachusetts Institute of Technology’s Sloan School of Management.

Nearly 50% of Asset Managers Expect to Hire Personnel to Support Alternative Investments

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New research from Cerulli Associates finds that 47% of asset managers expect to hire dedicated marketing personnel and 41% expect to hire dedicated sales personnel in the next 12 months to support alternative investments.

“We’ve seen an increase in asset managers capitalizing on investor interest in alternatives by broadening their product lines,” explains Pamela DeBolt, senior analyst at Cerulli. “To be successful, managers must deepen their staff of dedicated professionals to support these efforts.”

The November 2013 issue of The Cerulli Edge-U.S. Asset Management Edition examines product management teams, alternative investment staffing needs, and asset managers’ use of resources to target third party intermediaries.

“Alternative products can be complex and hard to understand for both advisors and end clients,” DeBolt continues. “Firms will be most successful when marketing and sales efforts include a significant educational component.”

According to Cerulli, firms have hired more dedicated sales professionals than any other alternatives-related position in the past year. The number of sales personnel dedicated to alternative products increased 54% from 2012 to 2013 among managers that distributed alternatives to both retail and institutional clients.

“Looking ahead, we are seeing the hiring shift slightly from sales toward increasing marketing staff,” DeBolt states. “Larger firms tend to create more collateral and educational tools, and appropriate levels of staff are required to maintain and update these tools.”

As alternative investments are becoming an increased focus and a larger business line for some firms, Cerulli recommends continued evaluation of support levels to ensure that the appropriate resources are committed to alternative product lines on an ongoing basis.

Goldman Sachs Announces Sale of Majority Stake in Rothesay Life

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Goldman Sachs announced the sale of a majority stake in its UK pensions insurance business Rothesay Life. Funds managed by Blackstone and GIC each acquire 28.5% of the shares, with MassMutual acquiring a 7% holding. Goldman Sachs retains a 36% stake. The transaction is subject to regulatory approval.

Michael Sherwood, Vice Chairman of Goldman Sachs, said: “Rothesay Life’s success has now brought it to a size at which it is more capital-efficient for Goldman Sachs to share its ownership with other investors. As a market leader in a dynamic industry, Rothesay Life can continue its growth as a standalone business with the benefit of diversified ownership. We are pleased to remain the largest shareholder alongside three world class investors.”

Building the New China

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Construyendo la nueva China — By Dcubillas. Building the New China

The opening of the Shanghai Free Trade Zone marks one of the milestones of what will become “the new China” – with new opportunities for investors.

The zone is a testing ground for reform as the country seeks to move from the heavily state controlled and export-led “old China” to a modern economy, says Victoria Mio, Robeco’s portfolio manager for Chinese equities.

China aims to move towards a more consumer-led economy, with greater emphasis on developing the nascent service industry, and less state control over private enterprise.

“China has been undergoing a period of transition ever since the financial crisis and the recessions that hit the west, as it can no longer rely on exports for growth. The new China is related to the growth that these structural reforms will bring about,” says Mio.

“The new China is related to the growth that these structural reforms will bring about”

A busy few months for legislators
Politically, the wheels are already in motion. Since the new Chinese government took office in March, it has been actively formulating further reform that will begin in earnest in 2014. The 3rd Plenary Session of the ruling Communist Party is due to meet in November to authorize extensive financial and economic restructuring.

Opening the Shanghai zone in September is a precursor to China’s application to join the Trans-Pacific Partnership, a powerful trade zone that includes Japan, the US, and 10 other Pacific Rim nations representing about 40% of global trade. Membership requires complete freedom of capital, which has thus far been controlled by the Chinese government.

“China is trying to reduce the role of government in the economy. The Shanghai zone will enable companies engaged in key growth areas to do conduct their business without government approval,” says Mio, who is based in Hong Kong.

The reforms are described as China’s ‘Big Bang’ whose impact will be similar to the way western financial markets were reformed in the 1980s. They also aim to help the country’s achieve its ambition of establishing the renminbi as a global reserve currency in future years.

“China is trying to reduce the role of government in the economy”

Investment opportunities are plentiful
It means many opportunities for investors, says Mio. Her fund has outperformed the benchmark ever since it was set up in 2004, thanks to its blend of fundamental and quantitative stock-picking techniques combined with a thematic macroeconomic overlay analysis*.

Investors had been spooked this year by fears of a hard landing for Chinese growth following a weaker-than-expected first half, but GDP has accelerated in the second half, and the annual target of 7.5% is now seen as being easily met.

“We think that improving the quality of growth, to be driven by consumption, domestic demand and services-orientated business, and less driven by exports and government, is how the new China will move forward,” she says.

Services-based refocusing
China – long the factory of the world, with a heavy emphasis on manufacturing – wants to move to a more services- based economy. In the Shanghai Free Trade Zone, the government has established a ‘negative list’ of ‘old China’ industries that saw heavy state control, and a ‘positive list’ of ‘new China’ businesses that will be promoted.

Negative industries include state monopolies in mining and transport; ‘ideological industries’ such as media; and strategic manufacturing such as railways. The positive industries include financial and professional services, technology, healthcare, education and culture. Those companies on the positive list will not need to obtain government approval for their activities.

Reforms that will be tested within the Shanghai Free Trade Zone include a relaxation of controls on foreign banks and fewer restrictions on foreign shipping at the world’s largest port. The government aims to reduce the barriers to entry for progressive, positive list companies.

The new themes will also focus on cutting China’s notorious pollution levels, offering opportunities for investors in companies engaged in the key growth areas of alternative energy and environmental protection. In technological development, mobile phone penetration is about 90% and internet use even lower at 45%, compared to more than 100% in the west (including smartphones and tablets).

The Chinese economy in numbers

Stock picking strategy
Mio’s fund looks to pick the strongest players in each sector. The fund invests in Chinese stocks quoted in Hong Kong and Shanghai, currently representing the old and new Chinas. “It’s a good time to invest – valuations are low right now,” she says.

“Chinese stocks are trading on 9.2 times forward earnings when the long-term average is 12.2 times. It’s been lower than average because of lower GDP growth, but the slowdown has bottomed out.”

“Now China is in a period of cyclical recovery, and that’s very good for the stock market. This has been confirmed by the number of Chinese companies giving more positive guidance for the second half.”

The consensus for earnings growth for MSCI China companies is 10.1% for 2013 and 9.6% for 2014. In the first half, the earnings of index members rose 12% before slowing in the third quarter and recovering in the fourth.

Some risks remain
So what are the risks? China remains heavily indebted, with total borrowing equivalent to 209% of GDP, although most of this debt is held by domestic households and corporates rather than foreigners. Debt levels are still much lower than western competitors such as Japan (392%), the UK (292%) and the US (253%).

Property bubble risks have emerged, though this has tended to be concentrated in the four ‘Tier-1’ cities of Shanghai, Beijing, Shenzen and Guangzhou where housing demand has considerably outstripped supply. Mio says other Chinese cities from Tier 2 and below where the majority of people live have similar house value-to-mortgage levels as in the west.

And China will remain a net exporter, partly still reliant on the austerity-hit west, as the steady appreciation of the renminbi hampers the price competitiveness of Chinese exports. The currency has already appreciated by 19% against the US dollar over the past five years, but is still considered “moderately undervalued” by the IMF.